You’re trying to figure out which retirement account will be best for you, and your finding that each account has its pros and cons. A Roth 401k is ideal for many people, but it’s important that you understand the advantages of the account before you start making contributions.
Keep in mind that a Roth 401k is a little different than a traditional 401k account or a Roth IRA. It’s a fairly new retirement plan that actually combines benefits from a 401k and Roth IRA account. One of the best benefits of the new account is that the money is automatically deducted from your paycheck with after-tax funds. With a traditional 401k, the money is taken from your paycheck tax-free, and you pay taxes on the money when you withdraw it after retirement. With a Roth IRA allows you to add money to your retirement account after you receive your paycheck and taxes are taken out.
When you have a Roth 401k, your money will earn interest on itself. And, there are no taxes taken out of the money after retirement, because the money has already been taxed. This is a great advantage for individuals who are getting ready for retirement in the next few years, since it means that all the money in the Roth 401k can be used solely for the purpose of sustaining your life after you’ve retired from work. In a Roth 401k, the money you paid to the account, and the money you’ve earned are both taxed, and you’ll be able to use the account much like a bank account without having to pay any additional fees.
If you are fairly young and won’t be retiring for another 10 or 15 years, the Roth 401k may be best for you as well. Many young professionals are preparing to be in a higher tax bracket when they are older, and this is usually the case, especially if you stay with the same company for years and receive promotions. If you establish a Roth 401k for yourself, you’ll be paying the taxes associated with your tax bracket now. And since you won’t have to pay taxes on the money later, even when you’re in a higher tax bracket, you’ll be creating more funds for you and your family to live off of when you are no longer working. If you moved to a higher tax bracket and had a traditional 401k, you’d be paying out a lot more from your account to take care of taxes.
If you want to know more about Roth 401k plans, you should check with your employer to see if they are offered. You can also get first hand information on this type of retirement investment when you visit the finance sections of the Yahoo or MSN homepages.
